nep-cfn New Economics Papers
on Corporate Finance
Issue of 2020‒08‒31
ten papers chosen by
Zelia Serrasqueiro
Universidade da Beira Interior

  1. The COVID-19 shock and equity shortfall: Firm-level evidence from Italy By Carletti, Elena; Oliviero, Tommaso; Pagano, Marco; Pelizzon, Loriana; Subrahmanyam, Marti G.
  2. Staged equity financing By Magnus, Blomkvist; Korkeamäki, Timo; Takalo, Tuomas
  3. Bank Complexity, Governance, and Risk By Ricardo Correa; Linda S. Goldberg
  4. The Leveraging of Silicon Valley By Jesse Davis; Adair Morse; Xinxin Wang
  5. The interplay of financial education, financial literacy, financial inclusion and financial, stability: Any lessons for the current Big Tech era? By Nicole Jonker; Anneke Kosse
  6. Does Joining the S&P 500 Index Hurt Firms? By Benjamin Bennett; René M. Stulz; Zexi Wang
  7. Insider Ownership and Dividend Payout Policy: The Role of Business Cycle By Asmar Aliyeva
  8. The Dollar and Corporate Borrowing Costs By Ralf R. Meisenzahl; Friederike Niepmann; Tim Schmidt-Eisenlohr
  9. Stock market vulnerability to the Covid-19 pandemic: Evidence from emerging Asian stock markets By Rabhi, Ayoub
  10. Partial Vertical Ownership with Asymmetric Information By Ricardo Gonçalves; Peyman Khezr; Flavio Menezes

  1. By: Carletti, Elena; Oliviero, Tommaso; Pagano, Marco; Pelizzon, Loriana; Subrahmanyam, Marti G.
    Abstract: We employ a representative sample of 80,972 Italian firms to forecast the drop in profits and the equity shortfall triggered by the COVID-19 lockdown. A 3-month lockdown generates an aggregate yearly drop in profits of about 10% of GDP, and 17% of sample firms, which employ 8.8% of the sample's employees, become financially distressed. Distress is more frequent for small and medium-sized enterprises, for firms with high pre-COVID-19 leverage, and for firms belonging to the Manufacturing and Wholesale Trading sectors. Listed companies are less likely to enter distress, whereas the correlation between distress rates and family firm ownership is unclear.
    Keywords: COVID-19,pandemics,losses,distress,equity,recapitalization
    JEL: G01 G32 G33
    Date: 2020
  2. By: Magnus, Blomkvist; Korkeamäki, Timo; Takalo, Tuomas
    Abstract: We propose a rationale for why firms often return to the equity market shortly after their initial public offering (IPO). We argue that hard to value firms conduct smaller IPOs, and that they return to the equity market conditional on positive valuation signal from the stock market. Thus, information asymmetry is not a necessary condition for staged financing. We find strong support for these arguments in a sample of 2,143 U.S. IPOs between 1981-2014. Hard to value firms conduct smaller IPOs, and upon positive post-IPO returns, they tend to return to the equity market quickly, following the IPO.
    JEL: G14 G24 G32
    Date: 2020–08–26
  3. By: Ricardo Correa; Linda S. Goldberg
    Abstract: Bank holding companies (BHCs) can be complex organizations, conducting multiple lines of business through many distinct legal entities and across a range of geographies. While such complexity raises the the costs of bank resolution when organizations fail, the effect of complexity on BHCs' broader risk profiles is less well understood. Business, organizational, and geographic complexity can engender explicit trade-offs between the agency problems that increase risk and the diversification, liquidity management, and synergy improvements that reduce risk. The outcomes of such trade-offs may depend on bank governance arrangements. We test these conjectures using data on large U.S. BHCs for the 1996-2018 period. Organizational complexity and geographic scope tend to provide diversification gains and reduce idiosyncratic and liquidity risks while also increasing BHCs' exposure to systematic and systemic risks. Regulatory changes focused on organizational complexity have significantly reduced this type of complexity, leading to a decrease in systemic risk and an increase in liquidity risk among BHCs. While bank governance structures have, in some cases, significantly affected the buildup of BHC complexity, better governance arrangements have not moderated the effects of complexity on risk outcomes.
    Keywords: Bank complexity; Risk taking; Regulation; Too big to fail; Liquidity; Corporate governance; Agency problem; Global banks; Diversification
    JEL: G21 G28 G32
    Date: 2020–07–02
  4. By: Jesse Davis; Adair Morse; Xinxin Wang
    Abstract: Early-stage firms utilize venture debt in one-third of financing rounds despite their general lack of cash flow and collateral. In our model, we show how venture debt aligns incentives within a firm. We derive a novel theoretical channel in which runway extension through debt increases firm value while potentially lowering closure. Consistent with the model's mechanism, we find that dilution predicts venture debt issuance. Empirically, treatment with venture debt lowers closure hazard by 1.6-4.4% and increases successful exits by 4.3-5.3%. Back-of-the-envelope calculations suggest $41B, or 9.4% of invested capital, remains productive due to venture debt.
    JEL: G24 G32 L26 O3
    Date: 2020–07
  5. By: Nicole Jonker; Anneke Kosse
    Abstract: The entry of Big Tech firms in the financial ecosystem might affect financial stability through the opportunities and challenges they create for financial inclusion. In this paper we survey the literature to determine the effectiveness of financial education in improving financial literacy and financial inclusion and to assess the impact of financial inclusion on financial stability. Based on our findings, we argue that new empirical research is needed to determine whether financial education can play a role in ensuring that everyone is able to reap the financial-inclusion benefits that Big Tech may bring. We also conclude that financial-inclusion opportunities created by Big Tech might potentially introduce risks for overall financial stability. Because of this, we underline the importance of proper supervision and regulation.
    Keywords: Big Tech; Fintech; Financial Services; Financial Education; Financial Literacy; Financial Inclusion; Financial Stability
    JEL: D14 D91 D92 G21 G23 O16
    Date: 2020–08
  6. By: Benjamin Bennett; René M. Stulz; Zexi Wang
    Abstract: We investigate the impact on firms of joining the S&P 500 index from 1997 to 2017. We find that the positive announcement effect on the stock price of index inclusion has disappeared and the long-run impact of index inclusion has become negative. Inclusion worsens stock price informativeness and some aspects of governance. Compensation, investment, and financial policies change with index inclusion. For instance, payout policies of firms joining the index become more similar to the policies of their index peers. ROA falls following inclusion. There is no evidence of an impact of inclusion on competition.
    JEL: G11 G14 G23 G31 G32 G35
    Date: 2020–07
  7. By: Asmar Aliyeva
    Abstract: We investigate how the relationship between managerial stock incentives and the dividend payout policy is impacted by the business cycle by using the data of S&P 1500 companies during 2000-2018. We find a strong negative relationship between managerial stock options and annual dividend payouts of companies for the full sample. Although the direction of the relationship is also negative for the recession period, the coefficient is found to be insignificant. We also find that the mentioned relationship may vary during the recession depending on the size of the company. The impact of stock options on the dividend payout is negative for medium-sized companies and the coefficient is both economically and statistically significant. The direction of impact changes for large-cap companies indicating to deterioration of the CEO voting power in those companies and less agency problem. We also determine that the percentage of shares held by the CEO has a positive impact on annual dividends distributed for large-cap companies, whereas this relationship changes in times of recession.
    Date: 2020–07
  8. By: Ralf R. Meisenzahl; Friederike Niepmann; Tim Schmidt-Eisenlohr
    Abstract: We show that U.S. dollar movements affect syndicated loan terms for U.S. borrowers, even for those without trade exposure. We identify the effect of dollar movements using spread and loan amount adjustments during the syndication process. Using this high-frequency, within loan variation, we find that a one standard deviation increase in the dollar index increases spreads by up to 15 basis points and reduces loan amounts and underpricing by up to 2 percent and 7 basis points, respectively. These effects are concentrated in dollar appreciations. Our results suggest that global factors reflected in the dollar determine U.S. borrowing costs.
    Keywords: loan pricing, syndicated loans, dollar, institutional investors, risk taking
    JEL: F15 G15 G21 G23
    Date: 2020
  9. By: Rabhi, Ayoub
    Abstract: This paper studies empirically the emerging Asian stock market vulnerability to pandemics. Taking the Covid-19 virus as a case study, we used the ARDL panel data approach to investigate the impact of the daily Covid-19 confirmed cases along with a behavioral component based on a triggering fear event related to news about Covid-19 deaths. The results indicate that both the reported daily growth of Covid-19 confirmed cases along with the triggering fear event related to news about death, affected the Asian stock markets performance negatively, other variables such as oil price, gold price, exchange rates, and the U.S stock market were also found to be determinants of the Asian stock markets during the studied period.
    Keywords: Behavioral finance, Covid-19, Event study, Pandemic, Stock market
    JEL: C4 C5 G1 G10 G15
    Date: 2020–04
  10. By: Ricardo Gonçalves (Católica Porto Business School, Universidade Catolica Portuguesa); Peyman Khezr (School of Economics, Finance and Marketing, RMIT University, Australia.); Flavio Menezes (School of Economics, University of Queensland, Brisbane, Australia)
    Abstract: We examine the role of asymmetric information about costs on the impact of partial (non-controlling) vertical integration on competition. We show that Greenlee and Raskovich (2006)’s invariance result that total downstream quantity (and, therefore, competition) is not impacted by such acquisitions holds in the case of privately known marginal costs and symmetric ownership shares. This invariance result provides a possible explanation for why partial acquisitions where downstream firms own equal shares in an upstream firm with market power are so uncommon.
    Keywords: Vertical integration; partial acquisition; asymmetric information.
    JEL: D4 L1 L2 L4
    Date: 2020–08–18

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